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ANALYSIS: 98 Percent of NYC’s Affordable Housing Projects Use Some Form of Property Tax Benefit and Half of the Affordable Housing Projects Use 421-a

April 28, 2016

-- Less than 10 percent of NYC’s affordable housing projects are union built --

The Real Estate Board of New York (REBNY) today released an analysis of public data available from the New York City Department of Housing Preservation and Development (HPD) regarding the Housing New York Plan (2014-2015). The analysis found that:

98 percent of HPD’s designated affordable housing projects use some form of a property tax benefit;

Over 50 percent of the affordable housing projects use the 421-a tax benefit program; and

Less than 10 percent of the affordable housing projects are union built.

As the chart below shows, the 421-a program plays a critical role in creating below market, or affordable, rental housing in those areas of the City where the cost of land, property taxes and the higher construction costs impose significant economic obstacles to affordable housing development. For example, over 78 percent of the affordable housing projects in Manhattan use 421-a, and approximately 55 percent of the affordable housing projects in Brooklyn use the tax benefit. In the absence of the 421-a benefit, affordable rental housing would be dramatically curtailed in areas of the City where it otherwise would be infeasible to produce new affordable housing.

The analysis also shows that few affordable housing projects are fully union built. Citywide, less than 10 percent of the affordable housing projects are union built. The remainder of such projects are built using non-union contractors and laborers or with a combination of union and non-union contractors and laborers (commonly referred to as “open shop” or “merit shop”). Even in Manhattan, historically considered the epicenter of union construction activity, only 26 percent of the affordable housing projects are union built. This low market share is probably a reflection of the burdensome cost of union construction. According to a recent report by the NYC Independent Budget Office (IBO), to maintain the City’s plan for constructing a total of 80,000 new affordable housing units, a requirement to pay prevailing wages for construction would necessitate roughly $4.2 billion in additional funding.

“New York is a city of renters and a city that continues to grow. It is clear that without 421-a, much less affordable housing will be developed, particularly in those areas of the City where it is most difficult to build,” said John H. Banks, III, President of REBNY. “The analysis also validates what numerous other groups have found – affordable housing production is significantly impacted by the cost of construction. The construction trade unions’ market share reflects how much more expensive it is to build under their cost structure. A responsible and practical approach is needed to address labor costs moving forward or else there will be much less affordable housing in New York City.”

ADDENDUM (April 29, 2016)

In response to this analysis, the Building and Construction Trades Council (BCTC) of Greater New York stated that it had conducted its own study which found that the trades had a 65 percent market share in big residential buildings, typically more than 100 units, built from 2010 to 2014. BCTC said that market share increased to more than three-quarters for even larger buildings typically topping 300 units and that many of those buildings also used 421-a and created affordable housing units.

However, an analysis of publicly available data from the New York City Department of Housing Preservation and Development (HPD) regarding the Housing New York Plan (2014-2015) casts doubt on such assertions and suggests that the trade union has been dramatically losing market share in the last two years.

Specifically, the analysis showed that for projects over 100 units:

18 percent of all affordable projects (21 percent of all affordable units) were union built; and

37 percent of all affordable projects, all of which were 421-a projects, (48 percent of all affordable units) were union built.

Other Affordable Housing Programs Are Only Available in More Limited Circumstances than the 421-a Program

The analysis shows that other programs produce affordable housing in New York City as well. However, the instances in which such programs can be used are much more limited than 421-a. A brief review of these programs is below.

TABLE 2: BREAKDOWN OF AFFORDABLE HOUSING PROJECTS

(SOURCE: HOUSING NEW YORK, 2014 – 2015)

Total NYC Affordable Projects = 156

Built Using 421-a

Built Using 420-c

Built Using Article XI

Built Using UDAAP

* No property tax benefit program utilized

# of Projects

79

59

12

3

3

% of Total

50.6%

37.8%

7.7%

1.9%

1.9%

* Two of these three projects may still opt to use a property tax benefit for their construction.

421-a is a property tax exemption program that provides a benefit for the development of market rate and affordable housing. The program is as-of-right, available citywide and can be used by for-profit builders. Recent legislation that is now “suspended” would further strengthen the program by ensuring a 25 or 30 percent on-site affordability requirement anywhere in the city, in exchange for a 35 year tax benefit.

According to Housing New York’s 2014-2015 data, other affordable housing programs include 420-c, Article XI and the Urban Development Action Area Program (UDAAP). In general, these programs produce a smaller number of projects, mandate a higher percentage of affordable units, typically require direct government subsidy, and include a regulatory agreement that imposes additional restrictions on the project.

420-c is an as-of-right tax benefit program for new construction and rehabilitation projects that requires HPD review and approval. The builder must be an entity in which at least 50 percent controlling interest is held by a tax exempt or charitable organization. The tax benefit can be granted for a maximum of 60 years and the taxes can be as low as zero. At least 70 percent of the units must be affordable to households earning up to 60 percent of the Area Median Income (AMI). There is no exemption for any commercial space in the project.

Article XI is a tax benefit program for new construction and rehabilitation carried out by a Housing Development Fund Corporation (HDFC) and its use must be approved by the City Council. (An HDFC is a corporation formed to build low-income housing and is individually chartered by HPD or New York State Homes and Community Renewal [HCR]). The tax benefit cannot exceed 40 years and taxes can be as low as zero. A renter’s income cannot exceed 165 percent of AMI.

Urban Development Action Area Project (UDAAP) is a tax exemption for the rehabilitation or new construction of housing in UDAAP designated areas – land that used to be owned by the City and has been designated by the City Council as an area in need of urban renewal. UDAAP provides up to a 20-year exemption from real estate taxes on the assessed value of the building.